What even is LITO?

The low income tax offset (people shorten it to LITO) is a reduction in the income tax you owe when your taxable income is on the lower side. It can make the tax on your return smaller. It is not extra cash added to each pay, and it is not the same thing as the tax-free threshold.

An offset is a discount applied when the year is added up. The tax-free threshold is a first slice of income that is usually taxed at nil, before offsets even enter the story. Different tools. The threshold, on its own page: What even is the tax-free threshold?.

What the low income tax offset actually does

When you lodge, the ATO looks at your taxable income and may apply LITO so the tax for that year is lower. You don’t usually tick it on a payslip the way you claim the tax-free threshold with an employer. It shows up in the tax calculation, not as a line called “LITO” on Friday’s pay.

That calculation sits next to the tax already withheld through the year. Withholding is an estimate: What even is PAYG?. The money that actually lands is What even is take-home pay?.

LITO is not the tax-free threshold

Claiming the tax-free threshold is a setting on your TFN declaration. It tells payroll how to withhold. LITO is the ATO’s offset when the return is worked out. You can have both in the same year. Mixing the names up is how a payslip story gets muddy.

If your income is low enough that you owe little or no income tax, an offset has less left to reduce. That’s normal. It isn’t a payment you’re missing.

Don’t memorise a dollar table

The size of the offset, and the incomes it applies to, can change. In recent years the maximum has been a few hundred dollars, then smaller as taxable income rises, then nothing. This page will not freeze those dollars into a table that goes stale.

The current figures live on ato.gov.au. If this page and the ATO disagree, the ATO wins. A registered tax agent can apply it to your year if the return gets messy. A mate’s screenshot cannot.

Where you’ll actually notice it

Mostly at tax time, not in the weekly shop. It can be part of why the final tax is lower than a rough guess. A refund, if you get one, is still withholding coming back, not a prize. How do I even get a tax refund?.

LITO doesn’t replace a plan. Take-home is still what you live on. An intentional slice for Emergency, Savings, and Investing is chosen on purpose from that number. A smaller tax result can help the plan. It doesn’t build the plan for you. What even is a budget?.

See also

What even is the tax-free threshold? · What even is PAYG? · What even is take-home pay? · How to do your first tax return